Lululemon’s latest earnings report reveals a robust international expansion that has offset slowing sales in the U.S. The athletic apparel retailer reported a 9% year-over-year sales increase in its fiscal third quarter, surpassing Wall Street’s expectations. Earnings per share reached $2.87, compared to the anticipated $2.69, while revenue climbed to $2.40 billion, exceeding forecasts of $2.36 billion. The strong performance sent shares up 8% in extended trading.
While U.S. comparable sales dipped by 2%, international sales surged by 25%, driving overall revenue growth. Lululemon’s CEO Calvin McDonald acknowledged the challenges in the U.S. market but expressed optimism about the holiday season. “We feel good about the start of the holiday season,” McDonald said, though he maintained a cautious outlook given the shorter shopping period this year.
Holiday and Annual Outlook Amid Challenges
For the fourth quarter, Lululemon projects revenue between $3.48 billion and $3.51 billion, an 8% to 10% increase from the prior year. Earnings per share are expected to range from $5.56 to $5.64, slightly surpassing analysts’ expectations of $5.59. CFO Meghan Frank emphasized a prudent approach to business planning, citing a shortened holiday shopping season and economic uncertainties.
Looking at the full fiscal year, Lululemon marginally raised its revenue guidance to $10.45 billion to $10.49 billion. The company anticipates annual earnings per share between $14.08 and $14.16, above Wall Street’s forecast of $13.97. Despite a competitive market and internal challenges, the company’s strategic focus on international markets, particularly China, has bolstered overall growth. Sales in the Americas rose by just 2%, whereas international sales soared by 33%, showcasing the growing importance of global markets.
Addressing Product and Market Pressures
The retailer has faced hurdles in its U.S. market, including missteps in product launches and inventory management earlier this year. A lack of appealing new styles slowed women’s apparel sales, coinciding with the departure of longtime Chief Product Officer Sun Choe. To address these issues, McDonald reorganized the product and merchandising teams, aiming for a more integrated and efficient structure under Chief Brand and Product Activation Officer Nikki Neuburger.
Retail analysts have noted a significant improvement in Lululemon’s product offerings in the third quarter. “The women’s range felt fresh and interesting, which improved conversion rates and average basket sizes,” said Neil Saunders of GlobalData. The company is on track to increase new product releases for the spring season, signaling a potential recovery in its core U.S. market.
Amid these adjustments, Lululemon has also sought to appease investors through a $1 billion stock repurchase program. As of Thursday, $1.8 billion remained authorized for buybacks. Profitability efforts have paid off, with gross margins rising to 58.5% in the third quarter, exceeding expectations. Despite challenges, Lululemon remains committed to innovation and global expansion, positioning itself for continued growth in a competitive landscape.
